Money, labour and its value
Labour is the real measure of the exchangeable value of all commodities.
The simple definition consists of immense amount of knowledge in figuring out how the world works, and how we exchange favours with each other to live our daily life.
Think about the life of a single lone lawyer living in Kathmandu. He eats vegetables grown by the farmers in Bhaktapur, rides on buses sold by the Indians, and reads books written by the Americans. On a hindsight, it may feel as though, he's self-sufficient, but everywhere, and everything that he accomplishes in life is aided by the contributions from millions of human beings. It is why our civilization is so powerful today, because of our ability to exchange favours and collectively work with each other for the greater good.
In fact, as Matt Ridley writes in his book, The Rational Optimist, the inter-dependency is a key metric in determining how opulent a society is. The more inter-dependency, the better.
But what helps catalyse such an inter-dependency? For the most part of our history, large human civilizations have only been able to sustain themselves around fertile lands. When lands are fertile, be it besides the Nile or the fertile lands in Asia, abundance of food fueled the much coveted interdependency among civilization of human beings.
More food offers room for people to focus on other traits of human life, than their own subsistence, while others produce food for the common consumption rather than their own. As such, further growth in division of labour ensues leading to increase in productivity.
However, when the supply becomes tight, fewer people are willing to give up on their food and they offer it to their own families neglecting other aspects of their needs (you don't care about toothpaste when you don't have enough food). The result, as Matt writes, is - people are bound to become more self-sufficient, while exchange takes a toil. More and more human labour is focused on growing food, and handling for the maintainence of their lives, resulting to a decline in economic growth.
In the previous blog post, I discussed how our society has a natural tendency for division of labour, and how it has helped us hone specific traits. Since, we are all so dependent on each other to solve different aspects of our life, we are defined rich or poor as per our ability to command, or purchase these labours.
For any commodity I have, it's value is equal to the quantity of labour it enables me to purchase of command. For example, what use is a Tola of Gold, if it doesn't enable me to purchase clothes? Those clothes are a production of labour from humans, perhaps in one region of China, with aide from automated machines built by humans in another region within China itself.
In truth, anything we buy could actually be done by us itself. However, it takes years of dexterity and groom to be able to reach at the point where we can do several things. For example, if you are a bad cook, the food of a 5-star chef is something you will find it difficult to acquire. You have to hone your skills first, through years of practice and then cook a food as delicious. But that's too much of effort to get a plate of delicious food on your table. So, the cost for your food is high, naturally because the toil and trouble of acquiring it is high.
Food is food, when you cook it or when a 5-star chef cooks it. The raw materials provided to both of you are often always the same. But the dexterity gained by a 5-star chef, and the trouble she goes through to acquire that dexterity, commands more labour. Thus, the real price of her food is higher than your food.
Adam Smith writes in his book, "What we buy by money, or with goods, is purchased by labour, as much as what we acquire by the toil of our own body". In concept, it's simple. When we offer any goods or service, the quantity of labour which we can exchange for it, is the same quantity of labour which we suppose is it's value.
If you determine that the quantity of your labour which goes for the food you prepare as a 5-star chef is equal to the quantity of labour that a 1000 RS note can purchase you, you price your food as RS 1000.
It may seem counter-intuitive sometimes, for instance when we seem to buy the same labour with less money, or with more money. In fact, I could point you to an example of one of our works at Dailo, where we charged more for Emergency and charged less for normal deliveries, even though we did the same exact task - delivery. If equal quantities of labour commands same amount of labour, why is it that an Emergency task commands more money?
However, it's important to note here, that the real value of our service is the toil for us to go through that service, as well as the toil it saves the customer when he assigns the task to us. In this sense, it is important to take into account the situations surrounding the service if the customer had to go through the task himself.
In reality, the customer can do the task himself. It doesn't even require him to get any degree, or years of practice. But, what he might not have then is one of the most valuable commodities for human beings - the commodity of time. For him to go through the task, he requires to leave everything he was doing, to carry out that certain task. The simple endeavour would cost him a lot of valuable time, so in this way, when he pays RS 400 for our service, the value of the money he attaches to the particular labour is now less than it was, simply because he believes that his time is essential for him.
The customer might be earning 1000RS/hr for example, and such a task is always bound to take an hour. Paying Dailo 400 RS instead, seems to be a better assessment of the quantity of labour that the task should command.
In this way, it is not that we are actually valuing labour differently when we pay different amount of money for the same task. It is the goods/ or the services that are valued differently.